SADOW: Those Spending-Limit Bills Are Fine, But They Need Some Work

A pair of bills that address how the Louisiana Legislature deals with the state’s spending limit marginally improves the current method, but further alterations build a much better case for their passage into law and adoption into the Constitution.

HB 464 and HB 469 by Republican state Rep. Beau Beaullieu would amend the Constitution and amend statute to alter the formula to compute changes in the expenditure limit and set a cap at five percent increase annually, both overridden only by two-thirds votes of the legislative chambers when in session. The statute also would set the limit annually at the lower of appropriations or the previous limit with the factor applied to both. Long overdue in concept, the details need adjustment or too many opportunities exist to make the cap much less effective.

The House Appropriations Committee started that process by removing language that would allow changes in the formula and cap outside of a specific legislative instrument, leaving less room to manipulate the amount between sessions for political reasons. But further tweaking needs doing to improve the bills even more as these advance to the full House and beyond.

One concerns the proposed formula. It has four components: the current formula of change in personal income and additions of changes in state gross domestic product, population, and the inflation rate of southern states, all over three years averaged. The last takes matters somewhat out of the hands of Louisiana, and if part of the computation should count, it should be that solely for Louisiana.

HB 469 also suffers from the built-in imprecision in how the Constitution and law addresses the issue at present, which allows for political manipulation. The appropriations number comes from the general fund (absent transfers) plus most dedicated funds and some fees and self-generated funds. (Keep in mind these determinations the bill explicitly puts in the hand of the commissioner of administration, which also may become subject to gaming.) Even excluding federal funds, out of the remaining revenues collected by the state almost $7 billion is exempt (over the past decade, roughly 30 to 42 percent of all exempt funds are state-originated, with the remainder federal), so policy-makers could subvert limits to a degree by shifting revenue collection, where applicable, to these exempt sources.

The five percent cap would help to belay this gamesmanship to a degree, but a lower cap would do better. With the natural interest rate, a reflective component of inflation, dropping from historical norms, four percent might work more appropriately to discourage gamesmanship. Further, adding other components (especially population change) will flatten the number more. In fact, in the past decade, the growth factor (currently only personal income change) never has exceeded 3.77 percent and has averaged only 2.78 percent (with four of the five the lowest amounts occurring during Democrat Gov. John Bel Edwards’ term; unlike editions of previous years, the state budget for fiscal year 2020 didn’t even report the 1.83 percent figure).

One could question the necessity of these bills. If it doesn’t like the level to which the limit has escalated, the Legislature with two-thirds votes in each chamber can drop it. It did so in 2013, lowering it 17.7 percent, and in 2018, reducing it 8.2 percent. This happened because revenues from all sources in the past decade increased only enough to allow for 22.6 percent more spending. Still, it might make for more rational policy-making with the limit controlled on the front end with a cap rather than on the back end by after the fact adjustments.

These bills upgrade the current constitutional and statutory language, but they can do better to reduce the possibility of oversized state government that threatens future fiscal stability. Legislators should work to that end in their final products.